Asian markets were downbeat on Monday as China's inflation data pointed to further economic weakness, while South Korean shares and the won dropped amid escalating political turmoil following a failed impeachment motion against President Yoon Suk Yeol. South Korean shares tumbled 2.2% to their lowest levels in a year.
The won weakened nearly 1%, approaching its lowest point in more than two years, reached on Dec. 3 when President Yoon declared martial law in an unannounced late-night address. The leadership crisis deepened on Sunday as prosecutors named Yoon as a subject of a criminal investigation, a media report said, and his former defence minister was arrested, a day after Yoon survived an impeachment vote in the opposition-led parliament.
The MSCI gauge of Asian emerging market equities, in which South Korea holds a roughly 12% weight, fell as much as 0.6%.
"With this uncertainty, Korean assets are likely to remain under pressure. The central bank will continue to provide liquidity and intervene to smooth fluctuations in the Korean won," said Khoon Goh, head of Asia research at ANZ in Singapore.
"But we are likely to see the won weaken slightly as a political risk premium gets priced in."
Fears of U.S. tariffs and an unexpected interest rate cut by the Bank of Korea coincided with a 14-month export slump in the Asian country, reflecting growing concerns about trade tensions and weakened U.S. demand.
The Philippine peso declined 0.4% and the Taiwan dollar retreated 0.3%. Among equities, shares in Thailand fell 0.7% whereas those in Malaysia were down 0.3%.
The Chinese yuan edged lower after the country's consumer inflation hit a five-month low in November, while factory deflation continued, indicating that Beijing's recent efforts to boost weakening economic demand have had only a limited impact.
Equities in China nudged 0.1% lower. China's Central Economic Work Conference is scheduled for this week, although markets are not sure if any new policies will be announced. Attention will also be on the U.S. inflation report on Wednesday, as markets assess the trajectory of the Federal Reserve's rate cuts, following last week's U.S. November payrolls data that reinforced expectations of monetary policy easing in December.
"Prospect for additional Fed rates cuts... would still give some respite for Asian central banks to work on their own agenda according to domestic fundamentals," said Frances Cheung, a rates strategist at OCBC. Markets are also awaiting inflation data from India, set to be released on Thursday.
HIGHLIGHTS:
** Brazil central bank to step up rate hike campaign on Dec. 11 - Reuters Poll
** Japan revises Q3 GDP higher, keeps alive BOJ rate-hike expectations
** Vietnam's soaring US trade surplus stokes new fears of Trump tariffs - Reuters
